<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended June 30, 2000
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[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the transition period from ______ to _______.
Commission file number: 000-29655
Alamogordo Financial Corp.
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(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C>
Federal 74-281948
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
500 10/th/ Street
Alamogordo, New Mexico 88310
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(Address of Principal Executive (Zip Code)
Offices)
</TABLE>
Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock par value $.10 per share
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(Title of Class)
(505) 437-9334
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No _______
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Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Issuer's revenues for the fiscal year ended June 30, 2000 were $11
million.
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, computed by reference to the average of the closing bid and ask
price of such stock on the OTS Bulletin Board on September 15, 2000 was
approximately $3.2.
The number of shares outstanding of the Issuer's Common Stock, the issuer's
only class of outstanding capital stock, as of June 30, 2000 was 1,275,000
shares issued.
<PAGE>
Documents Incorporated by Reference
The following documents, in whole or in part, are specifically incorporated
by reference in the indicated Part of this Annual Report on Form 10-KSB:
I. Portions of the Alamogordo Financial Corp. Proxy Statement for the 2000
Annual Meeting of Shareholders are incorporated by reference into certain
items of Part III.
II. Portions of the Alamogordo Financial Corp. 2000 Annual Report are
incorporated by reference into certain items of Part II.
<PAGE>
PART I
Item 1. Business
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Alamogordo Financial Corporation. We own 100% of the outstanding shares of
Alamogordo Federal. We do not have any other significant assets other than the
$1.8 million which we retained following our stock offering. We have not engaged
in any significant business activity other than owning the common stock of
Alamogordo Federal. Our principal executive offices are located at 500 10th
Street, Alamogordo, New Mexico, and our telephone number is (505) 437-9334.
Alamogordo Federal Savings and Loan Association. Alamogordo Federal is a
community-oriented savings association engaged primarily in the business of
offering FDIC-insured deposits to customers and investing those deposits,
together with funds generated from operations and borrowings, in loans,
investment securities and mortgage-backed securities. Alamogordo Federal's
mortgage loans include one- to four-family residential, multifamily and
nonresidential, construction and land loans. Consumer and other loans include
second mortgage, consumer, commercial business and deposit account loans. Based
on total deposits, Alamogordo Federal is the largest depository institution
headquartered in Alamogordo, and the New Mexico County of Otero.
Market Area
We operate one full-service branch in addition to our main office. Our
branch and main office are both located in Alamogordo, New Mexico. Our
geographic market area for loans and deposits is principally Otero County, New
Mexico. The majority of our loans are secured by real estate in Otero County,
New Mexico. Otero County's economy is heavily dependent on two U.S. Government
military installations located in the county. Otero County is located in
southern New Mexico, 90 miles Northeast of El Paso, Texas, and is adjacent to
the New Mexico counties of Lincoln, Chaves, Eddy, Dona Ana and Sierra and the
Texas counties of El Paso, Hudspeth and Culberson.
The local economy is comprised primarily of tourist related activity and
light manufacturing. White Sands National Monument, home of the annual White
Sands Balloon Festival, is a major attraction, as are the International Space
Hall of Fame and the Lincoln National Forest.
Holloman Air Force Base, the area's largest employer, is located near
Alamogordo, and is the home of the 49 Fighter Wing, flying the F-117 Stealth
Fighter. The air force base is also home to the German Air Force Flying Training
Center which provides flight training for Germany's Tornado Pilots. Holloman is
also the home of the high speed test track which provides extensive testing for
various aircraft components.
White Sands Missile Range, a U.S. Army installation near Alamogordo, is the
second largest overland testing range in the world. The range is utilized by
Holloman Air Force Base, Fort Bliss, Texas, and various defense contractors, and
is presently home to the High Energy Laser Test Facility developing a ballistic
missile defense system. White Sands Missile Range is the birthplace of the U.S.
rocket program in the 1940's, and today is the testing site for numerous
Department of Defense research and evaluation programs including the next
generation for anti-ballistic missiles.
<PAGE>
Other larger employers include Alamogordo Public Schools and the School for
the Visually Handicapped, City of Alamogordo, Gerald Champion Regional Medical
Center, Van Winkles IGA, White Sands Research Center and Casa Arena Blanca
Nursing Home.
As of 1998, the median household income in Alamogordo was $32,124, slightly
higher than the median household income for Otero County in 1998 of $29,315. As
of August, 1998, the labor force of Otero County consisted of 20,643 people of
which 19,408 were employed. This equates to an unemployment rate of 6.0%.
Competition
We face intense competition both in making loans and attracting deposits.
New Mexico, and Otero County have a high concentration of financial
institutions, many of which are branches of large money center and regional
banks which have resulted from the consolidation of the banking industry in New
Mexico and surrounding states. Some of these competitors have greater resources
than we do and may offer services that we do not provide. Moreover, many of our
competitors offer services through the internet, which we do not offer, and many
larger institutions that do not have a physical presence in our market area
compete with us through the use of the Internet.
Our competition for loans comes principally from commercial banks, savings
institutions, mortgage banking firms, credit unions, finance companies,
insurance companies and brokerage and investment banking firms. Our most direct
competition for deposits has historically come from credit unions, commercial
banks and savings and loan associations. We face additional competition for
deposits from short-term money market funds, corporate and government securities
funds, and from brokerage firms, mutual funds, and insurance companies.
In November 1999, President Clinton signed into law the Gramm-Leach-Bliley
Financial Services Modernization Act of 1999, federal legislation intended to
modernize the financial services industry by establishing a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms and other financial service providers. To the extent the
legislation permits banks, securities firms and insurance companies to
affiliate, the financial services industry may experience further consolidation.
This could result in a growing number of larger financial institutions that
offer a wider variety of financial services than we currently offer and that can
aggressively compete in the markets we currently serve.
Lending Activities
Loan Portfolio Composition. At June 30, 2000, we had total loans of $119.0
million, of which $104.6 million, or 88%, were one- to four-family residential
mortgages. The remainder of our mortgage loans at June 30, 2000, consisted of
multifamily and nonresidential, land, and construction loans. In addition, we
originate consumer and other loans including second mortgage loans, consumer
loans, commercial business loans, and deposit account loans. As of June 30,
2000, $6.23 million, or 5.2%, of our total loans have adjustable rates of
interest.
Our loans are subject to federal and state law and regulations. The
interest rates we charge on loans are affected principally by the demand for
loans, the supply of money available for lending purposes and the interest rates
offered by our competitors. These factors are, in turn, affected by general and
local economic conditions, monetary policies of the federal government,
including the Federal Reserve Board, legislative tax policies and governmental
budgetary matters.
The following table shows the composition of Alamogordo Federal's loan
portfolio in dollar amounts and in percentages (before deductions for loans in
process, deferred fees and discounts and allowances for losses) as of the dates
indicated.
2
<PAGE>
June 30,
-------------------------------------
2000 1999
------------------ ----------------
Amount Percent Amount Percent
-------- ------- ------- -------
(Dollars in Thousands)
Mortgage loans:
One- to four-family.............. $104,587 87.9% $106,286 88.7%
Multifamily and nonresidential... 7,410 6.2 8,109 6.8
Construction..................... 260 0.2 807 0.7
Land............................. 531 0.5 42 0.0
-------- ----- -------- -----
Total mortgage loans............ 112,788 94.8 115,244 96.2
-------- ----- -------- -----
Consumer and other loans:
Second mortgage.................. 1,830 1.5 1,326 1.1
Consumer......................... 1,347 1.1 1,271 1.1
Commercial business.............. 1,362 1.2 511 0.4
Deposit account.................. 1,693 1.4 1,436 1.2
-------- ----- -------- -----
Total consumer and other loans.. 6,232 5.2 4,544 3.8
-------- ----- -------- -----
Total loans.................... 119,020 100.0% 119,788 100.0%
===== =====
Less:
Loans in process................. (1,291) (2,825)
Deferred fees and discounts...... (528) (541)
Allowance for losses............. (419) (473)
-------- --------
Total loans receivable, net..... $116,782 $115,949
======== ========
Loan Maturity Schedules. The following table sets forth the dollar amounts
of fixed- and adjustable-rate loans at June 30, 2000 that are contractually due
after June 30, 2001.
Fixed Adjustable Total
-------- ---------- --------
(In thousands)
Mortgage loans:
One- to four-family............. $ 95,041 $5,257 $100,298
Multifamily and nonresidential.. 6,241 720 6,961
Construction.................... 63 -- 63
Land............................ 473 -- 473
Consumer and other loans......... 3,897 -- 3,897
Add back: Loans in process....... 1,291 -- 1,291
-------- ------ --------
Total loans due after one year... $107,006 $5,977 $112,983
======== ====== ========
3
<PAGE>
Maturity of Loan Portfolio. The following table sets forth certain
information at June 30, 2000 regarding the dollar amount of loans maturing in
Alamogordo Financial's portfolio based on their contractual terms to maturity,
but does not include scheduled payments or potential prepayments. Demand loans
and loans with no stated maturity are reported as becoming due within one year.
Loan balances do not include undisbursed loan proceeds, unearned discounts,
unearned income and allowance for loans losses.
<TABLE>
<CAPTION>
Multifamily and
One- to Four-Family Nonresidential Construction Land
------------------- ----------------- ---------------- ------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate
------ ------- ------ -------- ------ -------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Due During Years
----------------
Ending June 30,
---------------
2001 (1).................... $ 3,248 7.72% $ 408 7.97% $ 85 9.50% $ 30 11.52%
2002........................ 3,409 7.71 414 7.93 63 9.50 23 11.35
2003........................ 3,699 7.71 428 8.00 -- 0.00 326 9.37
2004 and 2005............... 8,462 7.75 892 8.04 -- 0.00 117 9.52
2006 to 2010................ 19,914 7.71 4,450 7.93 -- 0.00 5 9.52
2011 to 2025................ 55,932 7.64 777 7.97 -- 0.00 2 9.52
2026 and following.......... 8,882 7.63 -- 0.00 -- 0.00 -- 0.00
Add back: loans in process.. 1,041 41 112 28
-------- ---- ------ ----- ------ ---- ------ ----
Total loans................. $104,587 7.63% $7,410 8.45% $ 260 9.50% $ 531 9.52%
======== ==== ====== ===== ====== ==== ====== ====
<CAPTION>
Consumer and Other Total
-------------------- -------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ -------- ------ --------
<S> <C> <C> <C> <C>
Due During Years $ 2,266 8.36% $ 6,037 8.04%
---------------- 1,120 8.48 5,029 8.00
Ending June 30, 792 8.53 5,245 7.96
--------------- 897 8.61 10,368 7.90
2001 (1).................... 903 8.65 25,272 7.80
2002........................ 185 8.65 56,896 7.71
2003........................ -- 0.00 8,882 7.70
2004 and 2005............... 69 1,291
------- --------- -------- -------
2006 to 2010................
2011 to 2025................
2026 and following.......... $ 6,232 8.65% $119,020 7.83%
Add back: loans in process.. ======= ========= ======== =======
</TABLE>
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
4
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One- to Four-Family Residential Real Estate Loans. We emphasize the
origination of mortgage loans secured by one- to four-family properties that
serve as the primary residence of the owner, although we also offer loans
secured by properties that do not serve as the primary residence of the owner.
We currently hold most of the loans that we originate in our portfolio and
intend to continue to do so, although in the past we have sold loans. From time
to time we purchase one- to four-family residential mortgage loans, and have
purchased loans that are secured by properties that are not located in our
market area. Generally, the loans that we purchase have adjustable rates of
interest, and are purchased as part of our interest rate risk management
strategy. As of June 30, 2000, loans secured by one- to four-family residential
properties accounted for $104.6 million, or 88.0%, of our total loan portfolio.
We originate a significant amount of VA guaranteed loans, that is, 30-year
fixed-rate residential real estate loans that are partially guaranteed as to
repayment of principal and interest by the Department of Veterans Affairs
("VA"). The Department of Veterans Affairs guarantees 80% of the mortgage loans
against default by the borrower, and establishes the maximum interest rate that
lenders may charge. VA guaranteed loans may be repaid at any time without
penalty, and are assumable by another borrower at the same rate if the borrower
sells a home. At June 30, 2000, $22.7 million, or 21.7%, of our one- to four-
family residential real estate loans were VA guaranteed loans.
We originate VA guaranteed loans in amounts up to 100% of the appraised
value or selling price of the mortgaged property, whichever is less. In other
cases, we lend up to 95% of the lesser of the appraised value or purchase price
of the property, with the condition that private mortgage insurance is required
on loans with a loan-to-value ratio in excess of 80%. On occasion we originate
non-conforming loans which are tailored for the local community, but which may
not satisfy the various requirements imposed by Fannie Mae.
Our one- to four-family residential mortgage loan originations are
generally for terms from 10 to 30 years, and amortize on a monthly basis with
interest and principal due each month. Residential real estate loans often
remain outstanding for significantly shorter periods than their contractual
terms as borrowers may refinance or prepay loans at their option without
penalty. Except for our VA guaranteed loans, our one- to four-family residential
mortgage loans customarily contain "due-on-sale" clauses which permit us to
accelerate the indebtedness of the loan upon transfer of ownership of the
mortgage property. Because our local economy is heavily dependent on two U.S.
Government military installations located in the county, many of our borrowers
are employed by the federal government in positions that require frequent
relocation. When these borrowers relocate, they often sell the homes securing
the loan, and prepay the mortgage loan. As a result, we believe our one- to
four-family residential real estate loans, particularly our 30-year VA
guaranteed loans, remain outstanding for a shorter period of time than the
national average for 30-year fixed-rate one-to four-family residential real
estate loans.
We also offer adjustable-rate mortgage, or ARM, loans with a maximum term
of 30 years. The adjustable-rate loans that we offer generally include
limitations on the maximum increases and decreases in interest rates, and may
have "teaser" rates, or relatively low initial rates of interest. We believe
that adjustable-rate mortgage loans help reduce our exposure to changes in
interest rates. However, there are unquantifiable credit risks resulting from
potential increased costs to the borrower as a result of the pricing of
adjustable-rate mortgage loans. During periods of rising interest rates, the
risk of default on adjustable-rate mortgage loans may increase due to the upward
adjustment of interest cost to the borrower. We have not originated any
adjustable-rate one- to four-family residential real estate loans during the
fiscal year ended June 30, 2000.
During the fiscal year ended June 30, 1999, we purchased $4.6 million of
adjustable-rate loans secured by one-to four-family residential real estate
located in Indiana. During the fiscal year ended June 30, 2000 we made no
adjustable-rate loan purchases. At June 30, 2000, our portfolio included $5.4
million of adjustable-rate one- to four-family residential mortgage loans, or
4.5% of our total loan portfolio. Almost all of the adjustable-rate loans that
we currently own were purchased from another lender and are secured by real
estate located outside of our market area.
5
<PAGE>
Multifamily and Nonresidential Real Estate Lending. Our multifamily and
nonresidential real estate loans include real estate loans secured primarily by
first liens on commercial real estate and apartment buildings. The commercial
real estate properties are predominantly nonresidential properties such as
office buildings, retail strip centers and more specialized properties such as
churches, mobile home parks, restaurants and motel/hotels. Loans secured by
commercial real estate totaled $5.2 million, or 4.3%, of our total loan
portfolio as of June 30, 2000, and consisted of 21 loans outstanding with an
average loan balance of approximately $247,000. Loans secured by multifamily
residential real estate totaled $2.2 million, or 1.9%, of our total loan
portfolio as of June 30, 2000, and consisted of 5 loans outstanding with an
average loan balance of approximately $445,000. Substantially all of our
commercial real estate and multifamily loans are secured by properties located
in our primary market area. As of June 30, 2000, we had one multifamily
residential real estate loan and one commercial real estate loan with balances
in excess of $500,000. The commercial real estate loan had an aggregate balance
of $1.6 million and was secured by a first lien on a church property that is
located in our market area. The multifamily residential loan had an aggregate
balance of $1.6 million, and was secured by rental lots in a retirement
community located in our market area. Each of these loans was performing in
accordance with its contractual terms.
As part of the our ongoing interest rate risk management, we offer
adjustable-rate commercial and multifamily real estate loans. The initial
interest rates on these loans adjust after an initial three or five year period
to new market rates that generally range between 200 to 350 basis points over
the then current three or five year U.S. Treasury or FHLB rates. Commercial and
multifamily residential real estate loans typically have a term of approximately
10 years, with an amortization schedule of approximately 20 years, and may be
repaid subject to certain penalties.
In the underwriting of commercial and multifamily real estate loans, we
generally lend up to 70% of the property's appraised value on apartment
buildings, and commercial properties that are not owner-occupied, and up to 75%
of the property's appraised value on commercial properties that are owner-
occupied. Appraised values are determined by independent appraisers that we
designate. We generally obtain an environmental assessment from an independent
engineering firm of any environmental risks that may be associated with a
particular building or the site. Decisions to lend are based on the economic
viability of the property and the creditworthiness of the borrower.
Creditworthiness is determined by considering the character, experience,
management and financial strength of the borrower, and the ability of the
property to generate adequate funds to cover both operating expenses and debt
service. In evaluating a commercial real estate loan, we emphasize primarily the
ratio of net cash flow to debt service for the property, generally requiring a
ratio of at least 125%, computed after deduction for a vacancy factor and
property expenses that we deem appropriate. In addition, a personal guarantee of
the loan is generally required from the principal(s) of the borrower. On all
real estate loans, we require title insurance insuring the priority of its lien,
fire and extended coverage casualty insurance, and flood insurance, if
appropriate, in order to protect our security interest in the underlying
property.
Multifamily and nonresidential real estate loans generally carry higher
interest rates and have shorter terms than those on one- to four-family
residential mortgage loans. Multifamily and nonresidential real estate loans,
however, entail significant additional credit risks compared to one- to four-
family residential mortgage loans, as they typically involve large loan balances
concentrated with single borrowers or groups of related borrowers. In addition,
the payment experience on loans secured by income producing properties typically
depends on the successful operation of the related real estate project and thus
may be subject to a greater extent to adverse conditions in the real estate
market and in the economy generally.
Construction and Land Loans. We originate acquisition, development and
construction loans to builders in our market area. Acquisition loans are made to
help finance the purchase of land intended for further development, including
single-family houses, multifamily housing, and commercial income property. Loans
for the acquisition of land are generally limited to our most creditworthy
customers. In general, the maximum loan-to-value ratio for a land acquisition
loan is 50% of the appraised value of the property. Development loans are often
made in conjunction with development and construction loans. Acquisition loans
may also be made to borrowers who already own the property, but who require
additional financing to develop the property.
6
<PAGE>
We also make development loans to builders in our market area to finance
improvements to real estate, consisting mostly of single-family subdivisions,
typically to finance the cost of utilities, roads and sewers. Builders generally
rely on the sale of single family homes to repay development loans, although in
some cases the improved building lots may be sold to another builder. The
maximum loan-to-value ratio for these loans is generally 60% of the appraised
value of the property. Advances are made in accordance with a schedule
reflecting the cost of improvements. Our policy is to confirm prior to each
advance that the improvements have been completed properly as evidenced by an
inspection report issued by an appraiser or engineer that we hire. In addition,
prior to advancing funds, we confirm that its lien priority remains in effect.
We also grant construction loans to area builders, often in conjunction
with development loans. These loans finance the cost of completing homes on the
improved property. The loans are generally limited to the lesser of 75% of the
appraised value of the property or the actual cost of improvements. In the case
of single-family construction, we limit the number of houses we will finance
that are not under contract for sale. As part of our underwriting process for
construction loans on income producing properties, such as apartment buildings
and commercial rental properties, we consider the likelihood of leasing the
property at the expected rental amount, and the time to achieve sufficient
occupancy levels. We generally require a percentage of the building to be leased
prior to granting a construction loan on income producing property.
Advances on construction loans are made in accordance with a schedule
reflecting the cost of construction. Our policy is to confirm prior to each
advance that the construction has been completed properly as evidenced by an
inspection report typically issued by an in-house staff inspector. We also
confirm that our lien priority remains in force before advancing funds. The
normal construction period is six months, during which time we collect monthly
interest on the loan. Repayment of construction loans on residential
subdivisions is normally expected from the sale of units to individual
purchasers, although we may convert the construction loan into permanent
financing at such time. In the case of income producing property, repayment is
usually expected from permanent financing upon completion of construction. We
commit to provide the permanent mortgage financing on most of our construction
loans on income-producing property.
Acquisition, development and construction lending exposes us to greater
credit risk than permanent mortgage financing. The repayment of acquisition,
development and construction loans depends upon the sale of the property to
third parties or the availability of permanent financing upon completion of all
improvements. These events may adversely affect the borrower and the collateral
value of the property. Development and construction loans also expose us to the
risk that improvements will not be completed on time in accordance with
specifications and projected costs. In addition, the ultimate sale or rental of
the property may not occur as anticipated.
Consumer and Other Loans. The Bank originates a variety of consumer and
other loans, including second mortgage loans, consumer loans, deposit account
loans and commercial business loans. As of June 30, 2000, consumer and other
loans totaled $6.2 million, or 5.2% of the total loan portfolio. Our second
mortgage loans include fixed-rate, fixed-term second mortgage and home equity
loans. Our second mortgage loans are offered in amounts up to 90% of the
appraised value of the property (including prior liens). Other consumer loans
include primarily loans secured by personal property such as autos, recreational
vehicles and boats, although we make a small number of unsecured loans that are
personally guaranteed. Our procedures for underwriting consumer loans include an
assessment of an applicant's credit history and the ability to meet existing
obligations and payments on the proposed loan. Although an applicant's
creditworthiness is a primary consideration, the underwriting process also
includes a comparison of the value of the collateral security, if any, to the
proposed loan amount. Consumer loans generally entail greater risk than
residential mortgage loans, particularly in the case of consumer loans that are
unsecured or secured by assets that tend to depreciate, such as automobiles. In
such cases, repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment for the outstanding loan and the remaining
deficiency often does not warrant further substantial collection efforts against
the borrower. In addition, the repayment of consumer loans depends on the
borrower's continued financial stability, as their repayment is more likely than
a single family mortgage loan to be adversely affected by job loss, divorce,
illness or personal bankruptcy. Furthermore, the application of various federal
and state laws (including bankruptcy and insolvency laws) may limit the amount
that can be recovered on such loans.
7
<PAGE>
We also currently offer commercial business loans to customers in our
market area, some of which are secured in part by additional real estate
collateral. In our effort to expand our customer account relationships and
develop a broader base of more interest rate sensitive assets, we make various
types of secured commercial loans for the purpose of financing equipment
acquisition, expansion, working capital, inventory, operations and other general
business purposes. The terms of these loans generally range from less than one
year to up to ten years. The loans are either negotiated on a fixed-rate basis
or carry adjustable interest rates indexed to a lending rate which is determined
internally, or a short-term market rate index.
We base our commercial credit decisions upon a complete credit assessment
of the loan applicant. We try to comprehensively assess the risks involved in
the loan as part of our overall determination of whether the applicant will be
able to repay in accordance with the proposed terms. We generally require
personal guarantees of the principals. In addition to evaluating the loan
applicant's financial statements, we try to determine the probable adequacy of
the primary and secondary sources of repayment that we may rely upon in the
transaction. We supplement our analysis of the applicants creditworthiness with
credit agency reports of the applicant's credit history as well as bank checks
and trade investigations. We also analyze collateral supporting a secured
transaction to determine its marketability and liquidity. Commercial business
loans generally bear higher interest rates than residential loans, but they also
involve a higher risk of default since their repayment is generally dependent on
the successful operation of the borrower's business.
Loan Originations, Purchases, Sales and Servicing. Although we originate
both fixed-rate and adjustable-rate loans, our ability to generate each type of
loan depends upon borrower demand, market interest rates, borrower preference
for fixed- versus adjustable-rate loans, and the interest rates offered on each
type of loan by other lenders in our market area. This includes competing banks,
savings institutions, credit unions, and mortgage banking companies, as well as
life insurance companies, and Wall Street conduits that also actively compete
for local commercial real estate loans. Loan originations are derived from a
number of sources, including branch office personnel, existing customers,
borrowers, builders, attorneys, real estate broker referrals and walk-in
customers.
Our loan origination and sales activity may be adversely affected by a
rising interest rate environment that typically results in decreased loan
demand. Accordingly, the volume of loan originations and the profitability of
this activity can vary from period to period. One- to four-family residential
mortgage loans are generally underwritten to current Fannie Mae and Freddie Mac
seller/servicer guidelines, although we generally do not sell our loans.
From time to time we purchase one- to four-family residential mortgage
loans, and have purchased loans that are secured by properties that are not
located in our market area. Generally, the loans that we purchase have
adjustable rates of interest, and are purchased as part of our interest rate
risk strategy. Almost all of the adjustable-rate loans that we currently own
were purchased from another lender and are secured by real estate located
outside of our market area.
8
<PAGE>
The following table presents our loan originations, purchases, sales and
principal payments for the periods indicated.
Years Ended June 30,
-------------------
2000 1999
-------- --------
(In Thousands)
Loans receivable, net, at beginning of period.... $115,949 $109,766
Loans originated:
Mortgage loans:
One- to four-family............................ 9,062 18,283
Multifamily and nonresidential................. 208 981
Construction.................................. 3,811 10,228
Land........................................... 793 146
-------- --------
Total mortgage loans originated.............. 13,874 29,638
-------- --------
Consumer and other loans:
Commercial..................................... 2,160 423
Second mortgage, consumer and deposit account.. 2,838 2,593
-------- --------
Total consumer and other loans originated..... 4,998 3,016
-------- --------
Loans purchased:
Mortgage loans:
One- to four-family........................... -- 4,585
Multifamily and nonresidential................. -- --
Construction................................... -- --
Land........................................... -- --
Consumer and other loans......................... -- --
-------- --------
Total loans purchased......................... -- 4,585
-------- --------
Loans sold:
Mortgage loans:
One- to four-family........................... -- (1,148)
Multifamily and nonresidential................. -- --
Construction................................... -- --
Land........................................... -- --
Consumer and other loans......................... -- --
-------- --------
Total loans sold.............................. -- (1,148)
-------- --------
Principal repayments.......................... (19,640) (28,406)
-------- --------
Increase (decrease) in other items, net.......... 1,601 (1,502)
-------- --------
Loans receivable, net, at end of period.......... $116,782 $115,949
======== ========
Loan Approval Procedures and Authority. Once we receive a completed
application, it is presented to the Loan Committee which consists of Alamogordo
Federal's directors, senior management and loan officers. Our President has
lending authority up to $50,000, and other officers may have individual lending
authority up to $35,000. Loans of up to $250,000 may be approved by any three
members of the Loan Committee (other than loan officers). All loans of over
$250,000 must be approved by the Board of Directors.
The following describes our current lending procedures. Upon receipt of a
completed loan application from a prospective borrower, we order a credit report
and we verify certain other information. If necessary, we obtain additional
financial or credit related information. We require an appraisal for all
mortgage loans including loans made to refinance existing mortgage loans.
Appraisals are performed by licensed or certified third-party appraisal firms
which have been approved by our Board of Directors. We require title insurance
on all first mortgage loans and certain other loans. We require borrowers to
obtain hazard insurance, and if applicable, we may require borrowers
9
<PAGE>
to obtain flood insurance prior to closing. Borrowers are required to deposit
funds on a monthly basis together with each payment of principal and interest to
a mortgage escrow account from which we make disbursements for items such as
real estate taxes, flood insurance, hazard insurance, and private mortgage
insurance premiums, if required.
Asset Quality
One of our key operating objectives has been and continues to be to
maintain a high level of asset quality. Through a variety of strategies,
including, but not limited to, borrower workout arrangements and aggressive
marketing of foreclosed properties, we have been proactive in addressing problem
and non-performing assets. These strategies, as well as our high proportion of
one- to four-family mortgage loans, our maintenance of sound credit standards
for new loan originations and our loan administration procedures, have resulted
in historically low delinquency ratios and, in recent years, a reduction in non-
performing assets. These factors have helped strengthen our financial condition.
Delinquent Loans and Foreclosed Assets. When a borrower fails to make
required payments on a loan, we take a number of steps to induce the borrower to
cure the delinquency and restore the loan to a current status. In the case of
mortgage loans, our mortgage servicing department is responsible for collection
procedures from the 15th day up to the 120th day of delinquency. A late charge
notice is sent at 15 days. A reminder letter requesting prompt payment is sent
on the 25th day. At 30 days we also attempt to establish telephone contact with
the borrower. If no contact is established, progressively stronger collection
letters are sent on the 45th and 60th days of delinquency. Between the 60th and
90th day of delinquency, if telephone contact has not been established or if
there has been mail returned, the collector or his assistant makes a physical
inspection of the property. When contact is made with the borrower at any time
prior to foreclosure, we attempt to obtain full payment of the amount delinquent
or work out a repayment schedule with the borrower in order to avoid
foreclosure. It has been our experience that most loan delinquencies are cured
within 90 days and no legal action is taken.
We send the "right to cure" foreclosure notice when a loan is approximately
75 days delinquent. This contains a "right to cure" clause that gives our
customer the terms which must be met within 30 days of the date the letter is
sent in order to avoid foreclosure action. After this letter expires, we send
the loan to committee for approval to foreclose. We commence foreclosure if the
loan is not brought current by the 120th day of delinquency unless specific
limited circumstances warrant an exception. We hold property foreclosed upon as
other real estate owned. We carry foreclosed real estate at its fair market
value less estimated selling costs. If a foreclosure action is commenced and the
loan is not brought current, paid in full or refinanced before the foreclosure
sale, we either sell the real property securing the loan at the foreclosure sale
or sell the property as soon thereafter as practical. The collection procedures
for Federal Housing Association ("FHA") and VA one- to four-family mortgage
loans follow the collection guidelines outlined by those agencies.
The collection procedures for consumer and other loans include our sending
periodic late notices and letters to a borrower once a loan is past due. We
attempt to make direct contact with a borrower once a loan is 15 days past due.
We follow the same collection procedure as mortgages in our attempts to reach
individuals by telephone and sending them letters and notices. Supervisory
personnel in our lending area and in our collection area review loans 30 days or
more delinquent on a regular basis. If collection activity is unsuccessful after
120 days, we may charge off a loan and/or refer the matter to our legal counsel
for further collection effort. Loans deemed uncollectible by our Collection
Department are proposed for charge-off. All loan charge-offs regardless of
amount are to be approved by the senior loan officer or the president. Those
charge-offs in excess of $2,500 must be approved by a second senior officer and
reported to the Executive Committee or the Lending Committee at its next
scheduled meeting.
Our policies require that management continuously monitor the status of the
loan portfolio and report to the Board of Directors on a monthly basis. These
reports include information on delinquent loans and foreclosed real estate and
our actions and plans to cure the delinquent status of the loans and to dispose
of the real estate.
10
<PAGE>
Delinquent Loans. The following table sets forth our loan delinquencies by
type, by amount and by percentage of type at June 30, 2000.
<TABLE>
<CAPTION>
Loans Delinquent For:
--------------------------------------------------------------
90 Days and Over
30-89 Days and Nonaccrual Loans Total Delinquent Loans
---------------------------------- ------------------------- -------------------------
Percent Percent Percent
Of Loan Of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family....... 27 $ 1,319 1.26% 7 $ 561 0.54% 34 $ 1,880 1.80%
Construction.............. -- -- 0.00 1 152 2.05 1 152 2.05
Land...................... -- -- 0.00 -- -- 0.00 -- -- 0.00
Multifamily and
nonresidential............ -- -- 0.00 -- -- 0.00 -- -- 0.00
-- -------- -- ----- -- -------
Total mortgage loans....... 27 1,319 1.17 8 713 0.63 35 2,032 1.80
-- -------- -- ----- -- -------
Consumer and other loans:
Second mortgage........... -- -- 0.00 -- -- 0.00 -- -- 0.00
Consumer.................. 3 10 0.74 1 1 0.07 4 11 0.82
Commercial................ -- -- 0.00 -- -- 0.00 -- -- 0.00
Deposit account........... -- -- 0.00 -- -- 0.00 -- -- 0.00
Total consumer and other
loans................... 3 10 0.16 1 1 0.02 4 11 0.18
-- -------- -- ----- -- -------
Total delinquent loans:.... 30 $ 1,329 1.12% 9 $ 714 0.60% 39 $ 2,043 1.72%
== ======== == ===== == =======
</TABLE>
11
<PAGE>
Nonperforming Loans. The table below sets forth the amounts and categories
of non-performing assets in our loan portfolio. Loans are placed on non-accrual
status when the collection of principal and/or interest become doubtful. For all
years presented, we have had no troubled debt restructurings (which involve
forgiving a portion of interest or principal on any loans or making loans at a
rate materially less than that of market rates). Foreclosed assets include
assets acquired in settlement of loans.
<TABLE>
<CAPTION>
June 30,
-----------------
2000 1999
------ ------
(Dollars in Thousands)
<S> <C> <C>
Non-accruing loans:
Mortgage loans:
One- to four-family......................................... $ 561 $ 513
Multifamily and nonresidential.............................. 152 --
Construction................................................ -- 19
Land........................................................ -- --
Consumer and other loans:
Second mortgage............................................. -- --
Consumer.................................................... 1 --
Commercial.................................................. -- --
Deposit account............................................. -- --
------ ------
Total non-accruing loans................................... 714 532
------ ------
Accruing loans delinquent more than 90 days:
Mortgage loans:
One- to four-family......................................... -- --
Multifamily and nonresidential.............................. -- --
Construction................................................ -- --
Land........................................................ -- --
Consumer and other loans:
Second mortgage............................................. -- --
Consumer.................................................... -- --
Commercial.................................................. -- --
Deposit account............................................. -- --
------ ------
Total accruing loans more than 90 days delinquent.......... -- --
------ ------
Total non-performing loans.................................... 714 532
------ ------
Foreclosed assets:
Mortgage loans:
One- to four-family......................................... 52 --
Multifamily and nonresidential.............................. -- --
Construction................................................ -- --
Land........................................................ -- --
------ ------
Total foreclosed assets.................................... 52 --
------ ------
Total non-performing assets................................... $ 766 $ 532
====== ======
Total nonperforming assets as a percentage of total assets... 0.52% 0.33%
====== ======
Allowance for loan losses as a percentage of nonperforming
loans........................................................ 58.68% 88.72%
====== ======
Allowance for loan losses as a percentage of gross loans
receivable................................................... 0.35% 0.39%
====== ======
</TABLE>
For the year ended June 30, 2000 gross interest income which would have
been recorded had the non-accruing loans been current in accordance with their
original terms amounted to $46,600. We recorded no income on such loans for the
year ended June 30, 2000.
With the exception of first mortgage loans insured or guaranteed by the FHA
or VA or for which the borrower has obtained private mortgage insurance, we stop
accruing income on loans when interest or principal payments are 90 days in
arrears or earlier when the timely collectibility of such interest or principal
is doubtful. We designate loans on which we stop accruing income as non-accrual
loans and we reverse outstanding interest that we previously credited. We may
recognize income in the period that we collect it, when the ultimate
collectibility of
12
<PAGE>
principal is no longer in doubt. We return a non-accrual loan to accrual status
when factors indicating doubtful collection no longer exist.
We define the population of impaired loans to be all non-accrual commercial
real estate and commercial loans greater than $250,000. Impaired loans are
individually assessed to determine whether a loan's carrying value is not in
excess of the fair value of the collateral or the present value of the loan's
cash flows. Smaller balance homogeneous loans that are collectively evaluated
for impairment, such as residential mortgage loans and consumer loans, are
specifically excluded from the impaired loan portfolio. We had no loans
classified as impaired at June 30, 2000.
Foreclosed real estate consists of property we acquired through foreclosure
or deed in lieu of foreclosure. Foreclosed real estate properties are initially
recorded at the lower of the recorded investment in the loan or fair value.
Thereafter, we carry foreclosed real estate at fair value less estimated selling
costs.
Classification of Assets. Our policies, consistent with regulatory
guidelines, provide for the classification of loans and other assets such as
securities that are considered to be of lesser quality as substandard, doubtful,
or loss assets. An asset is considered substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the distinct possibility that the savings institution will sustain some loss if
the deficiencies are not corrected. Assets classified as doubtful have all of
the weaknesses inherent in those classified substandard with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable. Assets classified as loss are those considered
uncollectible and of such little value that their continuance as assets is not
warranted. Assets that do not expose us to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated as special mention by management. As
of June 30, 2000, we had $1.3 million of assets designated as special mention.
When we classify assets as either substandard or doubtful, we allow for
analytical purposes a portion of general valuation allowances or loss reserves
to such assets as deemed prudent by management. General allowances represent
loss allowances that have been established to recognize the inherent risk
associated with lending activities, but which have not been allocated to
particular problem assets. When we classify problem assets as loss, we are
required either to establish a specific allowance for losses equal to 100% of
the amount of the assets so classified, or to charge-off such amount. Our
determination as to the classification of its assets and the amount of its
valuation allowance is subject to review by regulatory agencies, which can order
the establishment of additional loss allowances. Management regularly reviews
Alamogordo Federal's asset portfolio to determine whether any assets require
classification in accordance with applicable regulations. On the basis of
management's review of Alamogordo Federal's assets at June 30, 2000, classified
assets consisted of substandard assets of $1.2 million. There were no assets
classified as doubtful or loss at June 30, 2000.
13
<PAGE>
Allowance for Loan Losses. The following table sets forth activity in
Alamogordo Federal's allowance for loan losses and other ratios at or for the
dates indicated.
Years Ended June 30,
-------------------
2000 1999
------ ------
(Dollars In Thousands)
Balance at beginning of period................. $ 472 $ 486
Charge-offs:
Mortgage loans:
One- to four-family.......................... 11 9
Multifamily and nonresidential............... -- --
Construction................................. -- --
Land......................................... -- --
Consumer and other loans:
Second mortgage.............................. -- 5
Consumer..................................... 2 --
Commercial................................... -- --
Deposit account.............................. -- --
Real estate held for investment............... -- --
------ ------
Total charge-offs........................... 13 14
------ ------
Recoveries:
Mortgage loans:
One- to four-family.......................... 8 --
Multifamily and nonresidential............... -- --
Construction................................. -- --
Land......................................... -- --
Consumer and other loans:
Second mortgage.............................. 2 --
Consumer..................................... -- --
Commercial................................... -- --
Deposit account.............................. -- --
Real estate held for investment............... -- --
------ ------
Total recoveries............................ 10 --
------ ------
Net charge-offs................................ 3 14
Credit for loan losses......................... (50) --
------ ------
Balance at end of period....................... $ 419 $ 472
====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period... 0.003% 0.012%
====== ======
Ratio of net charge-offs during the period to
average non-performing assets................. 0.619% 2.042%
====== ======
The allowance for loan losses is a valuation account that reflects our
evaluation of the losses inherent in our loan portfolio. We maintain the
allowance through provisions for loan losses that we charge to income. We charge
losses on loans against the allowance for loan losses when we believe the
collection of loan principal is unlikely.
Our evaluation of risk in maintaining the allowance for loan losses
includes the review of all loans on which the collectibility of principal may
not be reasonably assured. We consider the following factors as part of this
evaluation: our historical loan loss experience, known and inherent risks in the
loan portfolio, the estimated value of
14
<PAGE>
the underlying collateral and current economic and market trends. There may be
other factors that may warrant our consideration in maintaining an allowance at
a level sufficient to provide for probable losses. Although we believe that we
have established and maintained the allowance for loan losses at adequate
levels, future additions may be necessary if economic and other conditions in
the future differ substantially from the current operating environment.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review our loan and foreclosed real estate
portfolios and the related allowance for loan losses and valuation allowance for
foreclosed real estate. These agencies may require us to increase the allowance
for loan losses or the valuation allowance for foreclosed real estate based on
their judgments of information available to them at the time of their
examination, thereby adversely affecting our results of operations.
Allocation of the Allowance for Loans Losses. The following table presents
our allocation of the allowance for loan losses by loan category and the
percentage of loans in each category to total loans at the periods indicated.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------
2000 1999
------------------------------ -------------------------------
Percent Percent
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
---------- --------- -------- --------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans............ $ 359 $112,788 94.76% $ 412 $115,244 96.21%
Consumer and other loans.. 60 6,232 5.24 60 4,544 3.79
-------- -------- ------- -------- -------- ------
Total..................... $ 419 $119,020 100.00% $ 472 $119,788 100.00%
======== ======== ======= ======== ======== ======
</TABLE>
Investment Activities
Alamogordo Federal is permitted under federal law to invest in various
types of liquid assets, including U.S. Government obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
Federal Home Loan Bank of Dallas, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Within certain
regulatory limits, Alamogordo Federal may also invest a portion of its assets in
commercial paper and corporate debt securities. Savings institutions like
Alamogordo Federal are also required to maintain an investment in FHLB stock.
Alamogordo Federal is required under federal regulations to maintain a minimum
amount of liquid assets. At June 30, 2000, Alamogordo Federal's liquidity ratio
(liquid assets as a percentage of net withdrawable savings deposits and current
borrowings) was 11.0%.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that investments be
categorized as "held to maturity," "trading securities" or "available for sale,"
based on management's intent as to the ultimate disposition of each security.
Statement of Financial Accounting Standards No. 115 allows debt securities to be
classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." These securities are reported at fair value, and
unrealized gains and losses on the securities would be included in earnings.
Alamogordo Federal does not currently use or maintain a trading account. Debt
and equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." These securities are
reported at fair value, and unrealized
15
<PAGE>
gains and losses on the securities are excluded from earnings and reported, net
of deferred taxes, as a separate component of equity.
All of Alamogordo Federal's investment securities carry market risk insofar
as increases in market rates of interest may cause a decrease in their market
value. Many also carry prepayment risk insofar as they may be called prior to
maturity in times of low market interest rates, so that Alamogordo Federal may
have to invest the funds at a lower interest rate. Alamogordo Federal's
investment policy does not permit engaging directly in hedging activities or
purchasing high risk mortgage derivative products. Investments are made based
on certain considerations, which include the interest rate, tax considerations,
yield, settlement date and maturity of the investment, Alamogordo Federal's
liquidity position, and anticipated cash needs and sources. The effect that the
proposed investment would have on Alamogordo Federal's credit and interest rate
risk and risk-based capital is also considered. Alamogordo Federal purchases
investment securities to provide necessary liquidity for day-to-day operations.
Alamogordo Federal also purchases investment securities when investable funds
exceed loan demand.
Generally, the investment policy of Alamogordo Federal, as established by
the Board of Directors, is to invest funds among various categories of
investments and maturities based upon Alamogordo Federal's liquidity needs,
asset/liability management policies, investment quality, marketability and
performance objectives.
Alamogordo Federal's investment and mortgage-backed securities include
securities issued by the U.S. Government and government agencies, although from
time to time Alamogordo may purchase other investment and mortgage-backed
securities as permitted by applicable laws and regulations.
The following table sets forth the composition of our investment
securities, net of premiums and discounts, at the dates indicated. As of June
30, 2000, the average remaining life of our securities was 3.6 years.
<TABLE>
<CAPTION>
June 30,
------------------------------------
2000 1999
-------------------------------------
Carrying % of Carrying % of
Value Total Value Total
--------- ------- --------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. government agency securities........................ $ -- 0.00% $ 407 1.78%
Securities issued by states and political subdivisions.. 1,626 9.68 2,747 12.05
------- ------ ------- ------
Securities available for sale:
U.S. government agency securities........................ 12,918 76.93 13,916 61.03
Total investment securities............................. 14,544 86.61 17,070 74.86
------- ------ ------- ------
FHLB stock................................................ 1,435 8.54 1,332 5.84
------- ------ ------- ------
Total securities and FHLB stock......................... 15,979 95.15 18,402 80.70
Other interest-earning assets:
Interest-bearing deposits with banks..................... 814 4.85 4,401 19.30
------- ------ ------- ------
Total investment securities,
FHLB stock and other................................... $16,793 100.00% $22,803 100.00%
======= ====== ======= ======
</TABLE>
16
<PAGE>
<PAGE>
The following table presents the composition of our mortgage-backed
securities portfolios.
<TABLE>
<CAPTION>
June 30,
-----------------------------------
2000 1999
----------------- ---------------
Carrying % of Carrying % of
Value Total Value Total
-------- ------ -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Mortgage-backed securities held to maturity:
FHLMC.......................................... $ 211 7.64% $ 319 9.29%
Mortgage-backed securities available for sale:
GNMA........................................... 506 18.32 626 18.24
FNMA........................................... 1,243 45.00 1,513 44.07
FHLMC.......................................... 802 29.04 975 28.40
------- ------ ------ ------
Total mortgage-backed securities.............. $ 2,762 100.00% $3,433 100.00%
======= ====== ====== ======
</TABLE>
Carrying Values, Yields and Maturities. The following table sets forth the
scheduled maturities, carrying values, market value and weighted average yields
for our investment securities at June 30, 2000.
<TABLE>
<CAPTION>
Less Than 1 to 5 5 to 10 Over
1 Year Years Years 10 Years Total Investment Securities
---------- --------- --------- --------- ---------------------------
Carrying Carrying Carrying Carrying Carrying Market
Value Value Value Value Value Value
---------- --------- --------- --------- ------------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government agency securities............... $ -- $ 12,918 $ -- $ -- $ 12,918 $ 12,918
Mortgage-backed securities...................... -- 211 -- 2,551 2,762 2,759
Securities issued by states and political
subdivisions................................... 450 1,176 -- -- 1,626 1,614
Equity securities............................... -- -- -- -- -- 5
--------- -------- -------- -------- ---------- ---------
Total securities................................ $ 450 $ 14,305 $ -- $ 2,551 $ 17,306 $ 17,296
========= ======== ======== ======== ========== =========
Weighted average yield.......................... 3.99% 5.71% 0.00% 5.85% 5.69%
</TABLE>
Sources of Funds
General. Deposits are the primary source of Alamogordo Financial's funds
for lending and other investment purposes. In addition to deposits, Alamogordo
Financial derives funds primarily from principal and interest payments on loans.
Loan repayments are a relatively stable source of funds, while deposit inflows
and outflows are significantly influenced by general interest rates and money
market conditions. Borrowings may also be used on a short-term basis to
compensate for reductions in the availability of funds from other sources and
may be used on a longer-term basis for general business purposes.
Deposits. Alamogordo Financial's deposits are attracted principally from
within its primary market area. Deposit account terms vary, with the principal
differences being the minimum balance required, the time periods the funds must
remain on deposit and the interest rate.
Alamogordo Financial's deposits are obtained primarily from residents of
its primary market area. Alamogordo Financial is not currently using brokers to
obtain deposits. Alamogordo Financial's deposit products include demand and
NOW, money market, savings, and term certificate accounts. Interest rates paid,
maturity terms, service fees and withdrawal penalties are established by
Alamogordo Financial on a periodic basis. Management determines the rates and
terms based on rates paid by competitors, Alamogordo Financial's needs for funds
or liquidity, growth goals and federal and state regulations.
17
<PAGE>
Deposit Activity. The following table sets forth Alamogordo Financial's
savings flows during the periods indicated.
Years Ended June 30,
---------------------
2000 1999
--------- ---------
(Dollars in Thousands)
Opening balance.............. $ 122,460 $ 126,659
Deposits..................... 223,173 159,824
Withdrawals.................. (235,550) (170,637)
Interest credited............ 6,215 6,614
--------- ---------
Ending balance............... $ 116,298 $ 122,460
========= =========
Net increase (decrease)...... $ (6,162) $ (4,199)
========= =========
Percent increase (decrease).. (5.03)% (3.32)%
========= =========
Deposit Accounts. The following table sets forth the dollar amount of
savings deposits in the various types of deposit programs we offered as of the
dates indicated.
June 30,
-----------------------------------
2000 1999
----------------- -----------------
Amount Percent Amount Percent
--------- ------- -------- -------
(Dollars in Thousands)
Transaction and savings deposits:
Demand and NOW (0% to 2.60%)............. $ 7,172 6.17% $ 6,668 5.44%
Money market (0% to 3.75%)............... 6,790 5.84 8,229 6.72
Savings deposits (0% to 3.00%)........... 4,862 4.18 5,066 4.14
--------- ------ --------- -------
Total transaction and savings deposits.. 18,824 16.19 19,963 16.30
--------- ------ --------- -------
Term certificates:
0.00 - 4.00%............................. 4 0.00 887 0.72
4.01 - 5.00%............................. 10,067 8.66 27,281 22.28
5.01 - 6.00%............................. 41,973 36.09 35,965 29.37
6.01 - 7.00%............................. 37,836 32.53 29,912 24.42
7.01 and above........................... 7,594 6.53 8,461 6.91
--------- ------ --------- -------
Total term certificates................. 97,474 83.81 102,506 83.70
--------- ------ --------- -------
Total deposits............................ $ 116,298 100.00% $ 122,469 100.00%
========= ====== ========= =======
18
<PAGE>
Time Deposit Maturity Schedule. The following table presents, by rate
category, the remaining period to maturity of time deposit accounts outstanding
as of June 30, 2000.
<TABLE>
<CAPTION>
More Than More Than More Than More Than Percent
4.0% to 5.0% 5.0% to 6.0% 6.0% to 7.0% 7.0% Total of Total
-------------- ----------- ----------- --------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Quarter Ending:
--------------
September 30, 2000........ 4,622 6,755 3,524 15 14,916 15.30%
December 31, 2000......... 631 7,013 2,037 1,576 11,257 11.55
March 31, 2001............ 672 3,059 4,851 4,028 12,610 12.94
June 30, 2001............. 235 1,818 5,865 1,748 9,666 9.92
September 30, 2001........ 104 1,135 3,170 607 5,016 5.15
December 31, 2001......... 67 1,769 3,322 -- 5,158 5.29
March 31, 2002............ 305 1,624 2,488 -- 4,417 4.53
June 30, 2002............. 675 1,483 2,504 -- 4,662 4.78
September 30, 2002........ -- 2,373 2,876 -- 5,249 5.38
December 30, 2002......... -- 2,895 1,811 -- 4,706 4.83
March 31, 2003............ 167 2,128 2,236 -- 4,531 4.65
Thereafter................ 452 5,095 9,739 -- 15,286 15.68
------- -------- -------- ------- -------- --------
Total.................... $ 7,930 $ 37,147 $ 44,423 $ 7,974 $ 97,474 $ 100.00
======= ======== ======== ======= ======== ========
Percent of total......... 8.14% 38.11% 45.57% 8.18% 100.00%
======== ======== ======== ======= ========
</TABLE>
Large Certificates. The following table indicates the amount of our
certificates of deposit and other deposits by time remaining until maturity as
of June 30, 2000.
<TABLE>
<CAPTION>
Maturity
-----------------------------------------------
Over Over
3 Months 3 to 12 12 to 36 Over
or Less Months Months 36 Months Total
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000............ $ 10,428 $ 24,166 $ 27,046 $ 9,730 $ 71,370
Certificates of deposit of $100,000 or more........... 2,988 8,867 9,985 1,964 23,804
Deposits from governmental and other public entities.. 1,500 500 300 -- 2,300
-------- -------- -------- --------- --------
Total certificates of deposit......................... $ 14,916 $ 33,533 $ 37,331 $ 11,694 $ 97,474
======== ======== ======== ========= ========
</TABLE>
Borrowings. Alamogordo Federal may obtain advances from the FHLB of Dallas
upon the security of the common stock it owns in that bank and certain of its
residential mortgage loans and mortgage-backed securities, provided certain
standards related to creditworthiness have been met. These advances are made
pursuant to several credit programs, each of which has its own interest rate and
range of maturities. FHLB advances are generally available to meet seasonal and
other withdrawals of deposit accounts and to permit increased lending.
The following table sets forth the maximum month-end balance and average
balance of FHLB advances and other borrowings for the periods indicated.
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------
2000 1999
-------- --------
(In Thousands)
<S> <C> <C>
Maximum balance:
FHLB advances............. $ 10,000 $ 10,000
Other borrowings.......... -- 151
Average balance:
FHLB advances............. $ 8,840 $ 10,000
Other borrowings.......... -- 75
</TABLE>
19
<PAGE>
The following table sets forth certain information as to our borrowings at
the dates indicated.
June 30,
-----------------------
2000 1999
------- --------
(In Thousands)
FHLB advances....................................... $ 5,000 $ 10,000
Other borrowings.................................... -- --
------- --------
Total borrowings.................................... $ 5,000 $ 10,000
======= ========
Weighted average interest rate of FHLB advances..... 6.69% 4.81%
Weighted average interest rate of other borrowings.. n/a n/a
Subsidiary Activities
Alamogordo Financial has no direct subsidiaries other than Alamogordo
Federal. As a federally chartered savings association, Alamogordo Federal is
permitted by OTS regulations to invest up to 2% of its assets in the stock of,
or loans to, service corporation subsidiaries. Alamogordo Federal may invest an
additional 1% of its assets in service corporations where such additional funds
are used for inner-city or community development purposes and up to 50% of its
total capital in conforming loans to service corporations in which it owns more
than 10% of the capital stock. In addition to investments in service
corporations, federal associations are permitted to invest an unlimited amount
in operating subsidiaries engaged solely in activities in which a federal
association may engage. At June 30, 2000, Alamogordo Federal had one
subsidiary, Space Age City Service Corporation. Alamogordo Federal's investment
in its subsidiary was $182,000 as of June 30, 2000. As of June 30, 2000,
Alamogordo Federal had an outstanding note receivable from Space Age City
Service Corporation of $112,000. The subsidiary has been involved in a real
estate development project for the purpose of development of real estate lots.
As of June 30, 2000, Space Age City Service Corporation owns real estate it
values at approximately $215,000. Gross rental income from its investment
amounted to $9,000 for the fiscal year ended June 30, 2000.
Personnel
As of June 30, 2000, we had 43 full-time employees and 2 part-time
employees. The employees are not represented by a collective bargaining unit
and we consider our relationship with our employees to be good.
20
<PAGE>
REGULATION
General
Alamogordo Federal is regulated, examined and supervised by the OTS, as its
chartering agency, and the FDIC, as the insurer of its deposits. The activities
of federal savings institutions are governed by the Home Owners' Loan Act, as
amended and, incertain respects, the Federal Deposit Insurance Act and the
regulations issued by the OTS and the FDIC to implement these statutes. These
laws and regulations delineate the nature and extent of the activities in which
federal savings associations may engage. Lending activities and other
investments must comply with various statutory and regulatory capital
requirements. In addition, Alamogordo Federal's relationship with its depositors
and borrowers is also regulated to a great extent, especially in matters such as
the ownership of deposit accounts and the form and content of Alamogordo
Federal's mortgage documents. Alamogordo Federal must file reports with the OTS
and the FDIC concerning its activities and financial condition in addition to
obtaining regulatory approvals prior to entering into certain transactions such
as mergers with, or acquisitions of, other financial institutions. There are
periodic examinations by the OTS and the FDIC to review Alamogordo Federal's
compliance with various regulatory requirements. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in policies,
whether by the OTS, the FDIC or Congress, could have a material adverse impact
on Alamogordo Federal and its operations.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department of the
Treasury. It generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
Federal Home Loan Bank System. The Federal Home Loan Bank System,
consisting of 12 banks, is under the jurisdiction of the Federal Housing Finance
Board. Alamogordo Federal, as a member of the Federal Home Loan Bank of Dallas,
is required to acquire and hold shares of capital stock in the Federal Home Loan
Bank of Dallas in an amount equal to the greater of 1.0% of the aggregate
outstanding principal amount of residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year, or 1/20 of its
borrowings from the Federal Home Loan Bank of Dallas. Alamogordo Federal is in
compliance with this requirement. Among other benefits, the Federal Home Loan
Bank of Dallas provides a central credit facility primarily for member
institutions.
Federal Deposit Insurance Corporation. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the Bank Insurance Fund and the Savings Association Insurance Fund. As
insurer of Alamogordo Federal's deposits, the FDIC has examination, supervisory
and enforcement authority over Alamogordo Federal.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of Alamogordo Federal.
21
<PAGE>
Standards for Safety and Soundness
The federal banking regulatory agencies have adopted regulatory guidelines
for all insured depository institutions relating to internal controls,
information systems and internal audit systems; loan documentation; credit
underwriting; interest rate risk exposure; asset growth; asset quality;
earnings; and compensation, fees and benefits. The guidelines outline the safety
and soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. If the OTS determines that Alamogordo Federal fails to meet any
standard prescribed by the guidelines, it may require Alamogordo Federal to
submit to the agency an acceptable plan to achieve compliance with the standard.
OTS regulations establish deadlines for the submission and review of safety and
soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required to meet
a qualified thrift lender test to avoid certain restrictions on their
operations. A savings institution that fails to become or remain a qualified
thrift lender shall either convert to a national bank charter or face the
following restrictions on its operations. These restrictions are: the
association may not make any new investment or engage in activities that would
not be permissible for national banks; the association may not establish any new
branch office where a national bank located in the savings institution's home
state would not be able to establish a branch office; the association shall be
ineligible to obtain new advances from any Federal Home Loan Bank; and the
payment of dividends by the association shall be under the rules regarding the
statutory and regulatory dividend restrictions applicable to national banks.
Also, beginning three years after the date on which the savings institution
ceases to be a qualified thrift lender, the savings institution would be
prohibited from retaining any investment or engaging in any activity not
permissible for a national bank and would be required to repay any outstanding
advances to any Federal Home Loan Bank. In addition, within one year of the date
on which a savings association controlled by a company ceases to be a qualified
thrift lender, the company must register as a bank holding company and follow
the rules applicable to bank holding companies. A savings institution may
requalify as a qualified thrift lender if it thereafter complies with the test.
Currently, the qualified thrift lender test requires that either an
institution qualify as a domestic building and loan association under the
Internal Revenue Code or that 65% of an institution's "portfolio assets" consist
of certain housing and consumer-related assets on a monthly average basis in
nine out of every 12 months. Assets that qualify without limit for inclusion as
part of the 65% requirement are loans made to purchase, refinance, construct,
improve or repair domestic residential housing and manufactured housing; home
equity loans; mortgage-backed securities where the mortgages are secured by
domestic residential housing or manufactured housing; Federal Home Loan Bank
stock; direct or indirect obligations of the FDIC; and loans for educational
purposes, loans to small businesses and loans made through credit cards. In
addition, the following assets, among others, may be included in meeting the
test based on an overall limit of 20% of the savings institution's portfolio
assets: 50% of residential mortgage loans originated and sold within 90 days of
origination; 100% of consumer loans; and stock issued by Freddie Mac or Fannie
Mae. Portfolio assets consist of total assets minus the sum of goodwill and
other intangible assets, property used by the savings institution to conduct its
business, and liquid assets up to 20% of the institution's total assets. At June
30, 2000, Alamogordo Federal was in compliance with the qualified thrift lender
test.
Capital Requirements. Federal regulations require a savings association
must satisfy three minimum capital requirements: core capital, tangible capital
and risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital is
defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less any intangible assets, except for
certain qualifying intangible assets; certain mortgage servicing rights; and
equity and debt investments in subsidiaries that are not"includable
subsidiaries," which is defined as subsidiaries engaged solely inactivities not
impermissible for a national bank, engaged in activities impermissible for a
national bank but only as an agent for its customers, or engaged solely in
mortgage-banking activities. In calculating adjusted total assets,
22
<PAGE>
adjustments are made to total assets to give effect to the exclusion of certain
assets from capital and to account appropriately for the investments in and
assets of both includable and non-includable subsidiaries.
Savings associations also must maintain "tangible capital" not less than
1.5% of Alamogordo Federal's adjusted total assets. "Tangible capital" is
defined, generally, as core capital minus any "intangible assets" other than
purchased mortgage servicing rights. Each savings institution must maintain
total risk-based capital equal to at least 8% of risk-weighted assets. Total
risk-based capital consists of the sum of core and supplementary capital,
provided that supplementary capital cannot exceed core capital, as previously
defined. Supplementary capital includes permanent capital instruments such as
cumulative perpetual preferred stock, perpetual subordinated debt and mandatory
convertible subordinated debt, maturing capital instruments such as subordinated
debt, intermediate-term preferred stock and mandatory convertible subordinated
debt, based on an amortization schedule, and general valuation loan and lease
loss allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not included
for purposes of calculating capital are not included in calculating risk-
weighted assets. The categories range from 0% for cash and securities that are
backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans, including multi-family mortgage loans, are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans a
reassigned a 100% risk weight, as are non qualifying residential mortgage loans
and that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor from 0% to 100% assigned to that category.
These products are then totaled to arrive at total risk-weighted assets. Off-
balance sheet items are included in risk-weighted assets by converting them to
an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would face a deduction from total capital
for purposes of calculating their risk-based capital requirements. A savings
association's interest rate risk is measured by the decline in the net portfolio
value of its assets, or the difference between incoming and outgoing discounted
cash flows from assets, liabilities and off-balance sheet contracts, that would
result from a hypothetical 200 basis point increase or decrease in market
interest rates divided by the estimated economic value of the association's
assets, as calculated in accordance with guidelines of the OTS. A savings
association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate risk component in calculating its total capital under the risk-
based capital rule. The interest rate risk component is an amount equal to one-
half of the difference between the institution's measured interest rate risk and
2%, multiplied by the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data. A
savings association with assets of less than $300 million and risk-based capital
ratios in excess of 12% is exempt from the interest rate risk component, unless
the OTS determines otherwise. The rule also provides that the OTS may waive or
defer an association's interest rate risk component on a case-by-case basis.
Under certain circumstances, a savings association may request an adjustment to
its interest rate risk component if it believes that the calculated interest
rate risk component, as calculated by the OTS, overstates its interest rate risk
exposure. In addition, certain "well-capitalized" institutions may obtain
authorization to use their own interest rate risk model to calculate their
interest rate risk component in lieu of the amount as calculated by the OTS. The
OTS has postponed the date that the component will first be deducted from an
institution's total capital. As of June 30, 2000, Alamogordo Federal was in
compliance with all regulatory capital requirements.
23
<PAGE>
Capital Distributions
OTS regulations govern capital distributions by savings institutions, which
include cash dividends, stock repurchases and other transactions charged to the
capital account of a savings institution to make capital distributions. A
savings institution must file an application for OTS approval of the capital
distribution if either (1) the total capital distributions for the applicable
calendar year exceed the sum of the institution's net income for that year to
date plus the institution's retained net income for the preceding two years, (2)
the institution would not be at least adequately capitalized following the
distribution, (3) the distribution would violate any applicable statute,
regulation, agreement or OTS-imposed condition, or (4) the institution is not
eligible for expedited treatment of its filings. If an application is not
required to be filed, savings institutions which are a subsidiary of a holding
company, as well as certain other institutions, must still file a notice with
the OTS at least 30 days before the board of directors declares a dividend or
approves a capital distribution.
Loans to One Borrower
Savings institutions are generally required to follow the national bank
limit on loans to one borrower. Generally, this limit is 15% of its unimpaired
capital and surplus, plus an additional 10% of unimpaired capital and surplus,
if the loan is secured by readily marketable collateral, which is defined to
include certain financial instruments and bullion. The OTS by regulation has
amended the loans to one borrower rule to permit savings associations meeting
certain requirements, including capital requirements, to extend loans to one
borrower in additional amounts under circumstances limited essentially to loans
to develop or complete residential housing units. As of June 30, 2000,
Alamogordo Federal was in compliance with all loans to one borrower limitations.
See "Business of Alamogordo Financial Corporation--Lending Activities" for
further information.
Activities of Associations and Their Subsidiaries
A savings association may establish operating subsidiaries to engage in any
activity that the savings association may conduct directly and may establish
service corporation subsidiaries to engage in certain pre-approved activities
or, with approval of the OTS, other activities reasonably related to the
activities of financial institutions. When a savings association establishes or
acquires a subsidiary or elects to conduct any new activity through a subsidiary
that the association controls, the savings association must notify the FDIC and
the OTS 30 days in advance and provide the information each agency may, by
regulation, require. Savings associations also must conduct the activities of
subsidiaries in accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices. Based upon that determination, the
FDIC or the OTS has the authority to order the savings association to divest
itself of control of the subsidiary. The FDIC also may determine by regulation
or order that any specific activity poses a serious threat to the Savings
Association Insurance Fund. If so, it may require that no Savings Association
Insurance Fund member engage in that activity directly.
Transactions with Affiliates
Savings associations must comply with Sections 23A and 23B of the Federal
Reserve Act relative to transactions with affiliates in the same manner and to
the same extent as if the savings association were a Federal Reserve member
bank. A savings and loan holding company, its subsidiaries and any other company
under common control are considered affiliates of the subsidiary savings
association under the Home Owners Loan Act. Generally, Sections 23A and 23B
limit the extent to which the insured association or its subsidiaries may engage
in certain covered transactions with an affiliate to an amount equal to 10% of
the institution's capital and surplus and place an aggregate limit on all
transactions with affiliates to an amount equal to 20% of capital and surplus,
and require that all transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those
24
<PAGE>
provided to a non-affiliate. The term"covered transaction" includes the making
of loans, the purchase of assets, the issuance of a guarantee and similar types
of transactions.
Any loan or extension of credit by Alamogordo Federal to an affiliate must
be secured by collateral in accordance with Section 23A.
Three additional rules apply to savings associations. First, a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies. Second, a savings association may not purchase or invest insecurities
issued by an affiliate, other than securities of a subsidiary. Third, the OTS
may, for reasons of safety and soundness, impose more stringent restrictions on
savings associations but may not exempt transactions from or otherwise abridge
Section 23A or 23B. Exemptions from Section 23A or 23B may be granted only by
the Federal Reserve, as is currently the case with respect to all FDIC-insured
banks.
Alamogordo Federal's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by those persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
loans be made on terms and conditions substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment.
Regulation O also places individual and aggregate limits on the amount of loans
Alamogordo Federal may make to those persons based, in part, on Alamogordo
Federal's capital position, and requires certain board approval procedures to be
followed. The OTS regulations, with certain minor variances, apply Regulation O
to savings institutions.
Community Reinvestment Act
Savings associations are required to follow the provisions of the Community
Reinvestment Act of 1977, which requires the appropriate federal bank regulatory
agency, in connection with its regular examination of a savings association, to
assess the savings association's record in meeting the credit needs of the
community serviced by the savings associations, including low and moderate
income neighborhoods. The regulatory agency's assessment of the savings
association's record is made available to the public. Further, an assessment is
required of any savings associations which has applied, among other things, to
establish a new branch office that will accept deposits, relocate an existing
office or merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution. Alamogordo Federal
received a "satisfactory" rating as a result of its most recent examination.
Holding Company Regulation
General. AF Mutual Holding Company and Alamogordo Financial are
nondiversified mutual savings and loan holding companies within the meaning of
the HOLA. As such, AF Mutual Holding Company and Alamogordo Financial are
registered with the OTS and are subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over AF Mutual Holding Company and Alamogordo Financial and any
nonsavings institution subsidiaries. Among other things, this authority permits
the OTS to restrict or prohibit activities that are determined to be a serious
risk to the subsidiary savings institution. As federal corporations, Alamogordo
Financial and AF Mutual Holding Company are generally not subject to state
business organizations law.
Permitted Activities. Pursuant to Section 10(o) of the HOLA and OTS
regulations and policy, a mutual holding company and a federally chartered mid-
tier holding company such as Alamogordo Financial may engage in the following
activities: (i) investing in the stock of a savings association; (ii) acquiring
a mutual association through the merger of such association into a savings
association subsidiary of such holding company or an interim savings association
subsidiary of such holding company; (iii) merging with or acquiring another
holding company, one of whose subsidiaries is a savings association; (iv)
investing in a corporation, the capital stock of which is available for purchase
by a savings association under federal law or under the law of any state where
the subsidiary savings
25
<PAGE>
association or associations share their home offices; (v) furnishing or
performing management services for a savings association subsidiary of such
company; (vi) holding, managing or liquidating assets owned or acquired from a
savings subsidiary of such company; (vii) holding or managing properties used or
occupied by a savings association subsidiary of such company properties used or
occupied by a savings association subsidiary of such company; (viii) acting as
trustee under deeds of trust; (ix) any other activity (A) that the Federal
Reserve Board, by regulation, has determined to be permissible for bank holding
companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the
Director, by regulation, prohibits or limits any such activity for savings and
loan holding companies; or (B) in which multiple savings and loan holding
companies were authorized (by regulation) to directly engage on March 5, 1987;
and (x) purchasing, holding, or disposing of stock acquired in connection with a
qualified stock issuance if the purchase of such stock by such savings and loan
holding company is approved by the Director. If a mutual holding company
acquires or merges with another holding company, the holding company acquired or
the holding company resulting from such merger or acquisition may only invest in
assets and engage in activities listed in (i) through (x) above, and has a
period of two years to cease any nonconforming activities and divest of any
nonconforming investments.
The HOLA prohibits a savings and loan holding company, including Alamogordo
Financial and AF Mutual Holding Company, directly or indirectly, or through one
or more subsidiaries, from acquiring another savings institution or holding
company thereof, without prior written approval of the OTS. It also prohibits
the acquisition or retention of, with certain exceptions, more than 5% of a
nonsubsidiary savings institution, a nonsubsidiary holding company, or a
nonsubsidiary company engaged in activities other than those permitted by the
HOLA; or acquiring or retaining control of an institution that is not federally
insured. In evaluating applications by holding companies to acquire savings
institutions, the OTS must consider the financial and managerial resources,
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance fund, the convenience and needs of the
community and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies, and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Conversion of AF Mutual Holding Company to Stock Form. OTS regulations
permit AF Mutual Holding Company to convert from the mutual form of organization
to the capital stock form of organization (a "Conversion Transaction"). There
can be no assurance when, if ever, a Conversion Transaction will occur, and the
Board of Directors has no current intention or plan to undertake a Conversion
Transaction. In a Conversion Transaction a new holding company would be formed
as the successor to Alamogordo Financial (the "New Holding Company"), AF Mutual
Holding Company's corporate existence would end, and certain depositors of
Alamogordo Federal would receive the right to subscribe for additional shares of
the New Holding Company. In a Conversion Transaction, each share of Common Stock
held by stockholders other than AF Mutual Holding Company ("Minority
Stockholders") would be automatically converted into a number of shares of
common stock of the New Holding Company determined pursuant an exchange ratio
that ensures that after the Conversion Transaction, the percentage of the to-be
outstanding shares of the New Holding Company issued to Minority Stockholders in
exchange for their Common Stock would be equal to the percentage of the
outstanding shares of Common Stock held by Minority Stockholders immediately
prior to the Conversion Transaction. The total number of shares held by Minority
Stockholders after the Conversion Transaction would also be affected by any
purchases by such persons in the offering that would be conducted as part of the
Conversion Transaction.
26
<PAGE>
Item 2. Properties
------- ----------
Properties
We conduct our business through our administrative office and one
branch office. We own our administrative office building, and lease our branch
office facility. Our administrative offices are located at 500 10/th/ Street,
Alamogordo, New Mexico. Our branch office is located at 233 New York Street,
Alamogordo, New Mexico. Our premises and equipment had a net book value of $8.5
million as of June 30, 2000. We believe that our current facilities are adequate
to meet our present needs.
Item 3. Legal Proceedings
------- -----------------
We are not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. We
believe that these routine legal proceedings, in the aggregate, are immaterial
to our financial condition and results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
------- ---------------------------------------------------------------------
Information included in the 2000 Annual Report to Shareholders is
herein incorporated by reference.
Item 6. Management's Discussion and Analysis of Financial Condition and
------- ---------------------------------------------------------------
Results of Operations
---------------------
Information included in the 2000 Annual Report to Shareholders is
herein incorporated by reference.
Item 7. Financial Statements
------- --------------------
Information included in the 2000 Annual Report to Shareholders is
herein incorporated by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
------- ---------------------------------------------------------------
Financial Disclosure
--------------------
Not Applicable.
PART III
Item 9. Directors and Officers of the Registrant
------- ----------------------------------------
Information included in the Proxy Statement for the 2000 Annual
Meeting of Shareholders is incorporated herein by reference.
Item 10. Executive Compensation
-------- ----------------------
Information included in the Proxy Statement for the 2000 Annual
Meeting of Shareholders is incorporated herein by reference.
27
<PAGE>
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
-------- --------------------------------------------------------------
Information included in the Proxy Statement for the 2000 Annual
Meeting of Shareholders is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
-------- ----------------------------------------------
Information included in the Proxy Statement for the 2000 Annual
Meeting of Shareholders is incorporated herein by reference.
PART IV
Item 13. Exhibits and Reports on Form 8-K
-------- --------------------------------
(a) The following documents appear in sections of the Registrant's
2000 Annual Report to Shareholders under the same caption, and
are incorporated herein by reference. No other sections of the
2000 Annual Report to Shareholders are incorporated herein by
this reference.
(1) Report to Shareholders
(2) Selected Financial and Other Data
(3) Managements Discussion and Analysis of Financial Condition and
Results of Operations
(4) Independent Auditors' Report
(5) Consolidated Financial Statements
(i) Consolidated Balance Sheets
(ii) Consolidated Statements of Income
(iii) Consolidated Statements of Changes in Equity
(iv) Consolidated Statements of Cash Flows
(v) Notes to Consolidated Financial Statements
(6) Corporate Information
(b) The following exhibits are filed as part of this report.
3.1 Certificate of Incorporation of Alamogordo Financial Corp.*
3.2 Bylaws of Alamogordo Financial Corp.*
4.0 Stock Certificate of Alamogordo Financial Corp.*
10.1 Alamogordo Financial Corp. Employee Stock Ownership Plan and
Trust**
13 Alamogordo Financial Corp. 2000 Annual Report to Shareholders
21 Subsidiaries of Registrant
27 EDGAR Financial Data Schedule
(c) Reports on Form 8-K
None
* Incorporated herein by reference into this document from the Exhibits
to Form SB-2 Registration Statement, initially filed on December 16,
1999, Registration No. 333-92913.
28
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALAMOGORDO FINANCIAL CORP.
Date: September 25, 2000 By: /s/ R. Miles Ledgerwood
----------------------------------
R. Miles Ledgerwood
President
Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ R. Miles Ledgerwood By: /s/ Normal J. Clute
---------------------------- -----------------------------------
R. Miles Ledgerwood, President Norma J. Clute, Chief Financial Officer
and Director and Treasurer
(Principal Executive Officer) (Principal Financial and Accounting
Officer)
Date: September 25, 2000 Date: September 25, 2000
By: /s/ Robert W. Hamilton By: /s/ S. Thomas Overstreet
----------------------------- ----------------------------------
Robert W. Hamilton, Chairman of S. Thomas Overstreet, Director
the Board and Vice Chairman
Date: September 25, 2000 Date: September 25, 2000
By: /s/ Jimmie D. Randall By: /s/ Earl E. Wallin
----------------------------- -----------------------------------
Jimmie D. Randall, Director Earl E. Wallin, Director
Date: September 25, 2000 Date: September 25, 2000
29
